Low Mortgage Interest Rates For Everyone!!!: U.S. May Back Refinance Plan for Mortgages

[briansd1]

[quote=patientrenter]

You advocate an interesting world, brian. [/quote]

Let’s look at it this way: the banks did the bad underwriting and lent the money stupidly. So the notes they carry on their books are not worth the full face value.

I would bet that, on the agregate, the banks would get more by offering the very lowest rates to the homeowners who have been dutifully paying their mortgages. Otherwise, the incentives of walking away are very great, and people will almost all walk away one by one.

I have been arguing, years ago, since day one, that underwater borrowers would walk away. The optimists said that it didn’t matter because people borrowed what they could afford.

IMO, the banks should encourage their paying borrowers to stay in the underwater houses and keep on paying every month. The borrowers are rewarded with lower payments (not that being underwater is much of a reward); and the banks have performing loans.

[CA renter]

[quote=SD Realtor]Confusing the mortgage problem with an insolvency problem is incorrect Brian.

I am somewhat torn about this proposal. I do see merit in putting money in homeowners pockets by lowering the rate at which they are paying which essentially is what this proposal is doing for qualified homeowners who are underwater.

However this by no means is solving the problem. In fact it is more then likely perpetuating it. The solution is actually rolling back safegaurds that were put in place because of the bubble. Mortgage originators now can no longer be held responsible for an incorrect appraisal. In fact, I do not believe they will even be appraising properties that are going to be refinanced under this program. Thus a loan is being made on an asset that we know is much less valuable then the loan.

Doesnt that seem wrong to anybody?

Furthermore the GSEs are going to back the loans. Ultimately that is taxpayer money.

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What else is happening here? Well we are now going tens or hundreds of thousands of refinances, maybe even millions to people.

Guess who makes money on refinances? Those evil banks if I recall… Is that correct? CAR care to chime in?

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Finally, we are once more promoting a society of consumption and strapping people to debt. The debt has not shrunk, the overvalued asset is still highly overvalued, and the loans on the books although they are at a lower rate, in no way do they represent the value of the asset. So essentially instead of trying to encourage the society to live within their means we are doing the opposite.

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The problem is a solvency problem and until liquidation occurs, the problem will persist. In fact, the real solution would be to do the opposite which would be to let the foreclosures run their course, and perhaps not punish people for indeed walking away. If all that time and money we have put into bailouts, affordability programs, shams and backroom deals, and all the other things we don’t even know about, was rather put into a focus of figuring out how to perform an orderly liquidation then THAT is how you build a foundation of a strong real estate market. This would be a monumental task and perhaps it is impossible.

However swallowing the bitter pill involves liquidation.

Again I am not saying this proposal is entirely bad… It has some merit but in reality the underlying asset is overvalued and the banks will make a killing off of the refinances. That doesnt sit well with me.[/quote]

Great post, SDR. Couldn’t agree more with everything you’ve said.

As far as originating the new loans, yes, it’s my understanding that it will be done by the private sector, but they are hoping the originators will charge less for it.
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The new program enhancements address several other key aspects of HARP including:
 Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
 Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
 Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
 Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
 Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf

[SD Realtor]

Yes CAR origination charges will be lower because the hefty increases that were put in place by the GSEs are now going to be removed.

At least that is my understanding.

Like I said I am on the fence about the program. I understand the goal. Put more money in the pockets of people who have had a 6 month good payment history, (which is not much by the way) and hope that this money stimulates the economy.

Honestly I am not sure if that happens. I think an economy is stimulated with jobs. I think that people are trying to save money, not spend money that they save.

Again, I am trying to wrap my arms around a better solution that will actually help SOLVE the problem, not just push the problem down the road. In order to do that the asset HAS TO BE LIQUIDATED. So perhaps you actually liquidate the asset and let it go for sale. The current owners actually get first right of refusal of some sorts. That is, under an open bid, whatever that highest bid is, the owners get to match or top it. This would be a short sale of course. The only hitch is the equity problem. For this issue the owners may be granted some sort of leniency, perhaps due to their good payment history they only need to come up with 3% down or something like that. So what is the end result? Well the end result is that the bad loan comes off the books and is the new loan now reflects the current market value of the home. The owners who stayed got to keep the home and now have a lower payment. Alternately if they chose not to stay they then moved into a home and rented and now most likely have a lower payment and can live within their means.

In this manner the liquidation that needs to happen has happened. The “reward” for the original owners is that they got to stay in the home. Also they did not have to go through a default process so they are not affected credit wise. One may argue that they “lost” the equity but the equity was lost due to market depreciation anyways. The loser would be the investors because the loan did not get fully paid off however they did not wash out completely, they at least got back 50%, 60% or more on the loan.

To me a program like this is much more of a solution to the problem.

[scaredyclassic]

There is no solution to the problem that doesn’t involve a lot of changing.

It’s kind of funny to people when OWS people scream about forgiving debt. No one finds this whisper-debtmassage funny or absurd in the same way.

But it is.

It is what it is, as they say, but what it is is constantly subject to arbitrary amendment.

[barnaby33]

There is a big difference between giving the weakest, most irresponsible and relatively small segment of the population additional discretionary income for a year or two than giving it to the stronger, responsible and larger segment of the population for the long term. BIG DIFFERENCE!!!! And one with a very long term lasting impact.

You mean pretty much everyone who bought a house in SoCal since about 2002? I’d love to hear the explanation of this one.

[SD Realtor]

One other thing… it seems like if the real goal was to put more money into j6p pockets then why is this deal limited to only those who are underwater? Wouldn’t it make more sense to expand the refi opportunity to EVERYONE who owns a mortgage and who can show a good payment history of 6 months? To me that would pull a hell of alot more money into the wallets of everyday homeowners.

Of course they cannot do this because then the investors who own all that paper would see a loss of interest income.

[CA renter]

[quote=SD Realtor]Yes CAR origination charges will be lower because the hefty increases that were put in place by the GSEs are now going to be removed.

At least that is my understanding.

Like I said I am on the fence about the program. I understand the goal. Put more money in the pockets of people who have had a 6 month good payment history, (which is not much by the way) and hope that this money stimulates the economy.

Honestly I am not sure if that happens. I think an economy is stimulated with jobs. I think that people are trying to save money, not spend money that they save.

Again, I am trying to wrap my arms around a better solution that will actually help SOLVE the problem, not just push the problem down the road. In order to do that the asset HAS TO BE LIQUIDATED. So perhaps you actually liquidate the asset and let it go for sale. The current owners actually get first right of refusal of some sorts. That is, under an open bid, whatever that highest bid is, the owners get to match or top it. This would be a short sale of course. The only hitch is the equity problem. For this issue the owners may be granted some sort of leniency, perhaps due to their good payment history they only need to come up with 3% down or something like that. So what is the end result? Well the end result is that the bad loan comes off the books and is the new loan now reflects the current market value of the home. The owners who stayed got to keep the home and now have a lower payment. Alternately if they chose not to stay they then moved into a home and rented and now most likely have a lower payment and can live within their means.

In this manner the liquidation that needs to happen has happened. The “reward” for the original owners is that they got to stay in the home. Also they did not have to go through a default process so they are not affected credit wise. One may argue that they “lost” the equity but the equity was lost due to market depreciation anyways. The loser would be the investors because the loan did not get fully paid off however they did not wash out completely, they at least got back 50%, 60% or more on the loan.

To me a program like this is much more of a solution to the problem.[/quote]

IMHO, default is the only solution. I see no reason to reward foolish, risky behavior, either. The borrowers who were outbidding more prudent folks (who were then forced to rent on the sidelines) deserve absolutely no sympathy.

If we reward those who take on debt they have no intenions of paying off, then we can expect more of this behavior in the future. What we need to do is let those who caused the problems take the brunt of the consequences. Lenders have to lose, and borrowers have to be foreclosed on and take a credit hit. That’s they only way we can prevent this from happening in the future.

OTOH, if people want to give these mortgage slaves a lower rate, that’s fine. We just shouldn’t expect the government to have to pay for it. The lenders are free to modify the loans in whatever way they choose. Nobody should interfere with their right to foreclose, if that’s what they want to do when a borrower has stopped making payments. That’s the entire point of having a collateralized loan.

[scaredyclassic]

D’accord.

[moneymaker]

Stress is not all bad. Just look at recruits in boot camp,severely stressed and yet the healthiest people around.

[moneymaker]

[quote=Arraya][quote=jpinpb] But what causes someone to get the H. pylori bacteria? Could stress weaken the immune system and the body is vulnerable to unfriendly bacteria?[/quote]

Yes, the fundamental underlying issue in almost all illnesses today is stress. When stress hormones are released into your body, the same hormones that get you ready for fight and flight, also shut off the immune system.[/quote]

Stress can be good!
Don’t know if anybody has noticed it or not but all this talk of lowering rates or principal is nothing but talk. The government can’t make the banks do anything, all they can do is suggest. Now if the government would start focusing on what they “can do” then I think we would all be better off.

[Author]

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